Obama's Keystone Rejection May Provide A Buffett Bonanza

President Barack Obama has a lucky policy pal who may richly benefit from his administration’s latest energy decision.

Now that his State Department has decided to withhold approval for the Keystone XL pipeline that would have delivered millions of barrels of Canadian crude along with tens of thousands of jobs, a likely alternative is to transport that oil via the Burlington Northern Santa Fe (BNSF) railroad. That’s the 32,000 mile line with the best north-south infrastructure that Buffett’s Berkshire Hathaway purchased a 22% ($34 billion) share of one year after Obama was elected.

BNSF is already a major oil player in North Dakota where production from the enormous Bakken fieldshas maxed out existing pipeline capacity. Keystone XL would have relieved that bottleneck, and its delay or death serves as still another BNSF business boon. North Dakota pumped a record 113 million barrels of oil in 2010, and State officials estimate that daily production will reach 700,000 barrels in four to seven years.

Now with the TransCanada pipeline on hold, Canada’s best remaining choices are to reverse an existing Embridge-Kinder Morgan Northern Gateway pipeline and ship Alberta oil sand bitumen east, move it by rail to ports accessible for transport by ship to Asian markets, or deliver it via a North Dakota BNSF spur to U.S. refineries. Transport by rail costs more than by pipeline, but routing is more flexible and can begin almost immediately.

The Obama administration’s original decision to postpone Keystone approval until after the 2012 elections followed loud opposition on environmental grounds led by an anti-pipeline group called “Bold Nebraska”. This occurred despite three previous years of State Department environmental impact studies addressing likely risks and reasonable alternatives that determined it would have “no significant impacts”.

The BOLD Nebraska campaign was largely funded by Dick Holland, a close Buffett friend and business associate since the 1960s and an original Berkshire Hathaway investor.The two men share a similar political philosophy and are strong Democratic Party contributors. Prominent BOLD Nebraska cheerleaders are global warming alarmist James Hansen of NASA, and Hollywood celebrity Daryl Hannah.

Although the most prevalent environmental debate centered on potential pipeline leaks that might endanger the sensitive Ogallala aquifer area in Nebraska and other states along the route, it is clear that a primary opposition goal for many is not to simply to reroute the pipeline, but rather to discourage and handicap oil use altogether. As a New York Times editorial explained: “There is also the larger question of whether this country should keep conducting business as usual — that is, succumbing to the status quo of politics and big oil — or whether it will seriously grapple with the reality of climate change.”

The Friends of the Earth website echoes the same theme: “Investing in tar sands oil now will delay investments in clean and safe alternatives to oil, such as better fuel economy requirements, plug-in electric cars fueled by solar power, and smart growth and public transportation infrastructure that give Americans choices other than cars.”